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Expert: Don't wait to buy a long-term care insurance policy

long term care insurance policy According to a new report from the Centers for Disease Control and Prevention, a child born in 2012 in the United States will live longer than at any other time in history. The leading causes of death, such as heart disease, stroke and cancer, are becoming less deadly -- which means the average American's life expectancy has increased to a record high of 78.8 years in 2012.

About 12 million Americans currently need long-term care and support, according to the Bipartisan Policy Center, a nonprofit think tank. It's also predicted that 70 percent of Americans who reach age 65 will require long-term support of some kind, including assistance with daily living tasks such as bathing, medication management and meals. Long-term care can be very expensive -- in 2010, the average cost for a semi-private room in a nursing home cost $6,235 a month and a home health aide service costs $21 an hour.

So how can American families prepare for this likely financial burden?

We spoke to Olivia S. Mitchell, professor of insurance/risk management as well as business economics/policy at The Wharton School of the University of Pennsylvania. Her primary professional interests include public and private pensions, financial literacy, and insurance and risk management.

She discusses how long-term care insurance may be the right financial solution to alleviate the crushing financial burden of long-term care costs and when is the right time to purchase it.

1. How long should a consumer consider buying a long-term care insurance policy?

A. Not too long. The longer you wait, the more likely it is that you will come down with something that might make you impossible to insure. I decided to buy coverage when the kids were out of school. At that point, I canceled my life insurance and bought long-term care coverage.

2. Why is the cost of long-term care insurance increasing at such a rapid rate?

A.  Premiums are up in part because of low interest rates and rising longevity. Also, fewer people are letting their policies lapse than the insurers had predicted. So coverage is getting more expensive.

3. Do you believe the cost of long-term care insurance will continue to increase each year?

A.  I can't predict the future, but several things could make it less expensive. If interest rates rise, this will allow insurers to earn more on fixed investments, and so, charge less for coverage. If stock markets hold strong, this could also help insurers earn more on their assets with a likewise positive effect.

If Americans' health improves, particularly at older ages, that would also reduce our need for long-term care, and make the policies less expensive.

4. What should consumers do if their insurance company raises their long-term care insurance premium?

A.  People may try to shop around, but if they have some diagnosed health problem, it may be difficult to find some other company to take them. Decreasing benefits or raising the deductible could be worthwhile. Cancellation is of course the last resort.

5. Should a family member buy a long-term care insurance policy for an aging parent who can't afford it?

A.  Many baby boomers now realize how expensive it is to care for their parents in nursing homes, so the idea of covering one's relatives will seem increasingly appealing.

I should point out that LTC insurance must be purchased before the aging parents need care. Insurers restrict purchases of policies to people who aren't already ill to ensure the risk pool isn't just sick people.

6. How can we plan ahead to make sure we manage the cost of health care during retirement?

A.  Save more, work longer, and stay active. As we’re increasingly likely to live to age 100 and beyond, it's going to take a bigger nest egg if we still want to retire in our 60s. Also, if the stock market doesn't return over the next 40 years what it did in the last four decades, it's going to be difficult to make retirement assets stretch far enough.

So people ought to be saving at least 15 percent -- even 20 percent -- of their incomes for retirement, starting young.

Delaying retirement is another way to make the retirement money stretch further. People who quit young often need to cover their own health care insurance costs, which is expensive. And early retirees are also more likely to be in poor health, in part due to less exercise and less mental stimulation.

Staying active is also key to lower health care costs. Exercise and social interactions can keep you younger than you'd feel otherwise.

7. How has Obamacare affected long-term care coverage?

A. As yet, there hasn't been much of an impact. The Community Living Assistance Services and Supports Act (CLASS) was supposed to put long-term care coverage in place, but it was repealed due to predictions of very high costs.

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